Is CanSino a Buy After a Monthlong Slump?

The Chinese Covid-19 developer is a buy after a dip fueled by investor impatience.

Anthony Russo
    Aug 28, 2020 9:15 AM  PT
Is CanSino a Buy After a Monthlong Slump?
author: Anthony Russo   

The race to find the first safe and effective vaccine to combat Covid-19 is a tight one. There will be winners and there will be losers. Chinese vaccine developer, CanSino Biologics Inc. (HKEX: 06185) (OTC:CASBF) has watched its stock plunge as of late after falling behind in the pack.

The Phase 1 and 2 trial results of CanSino's Covid-19 vaccine candidate, known as Ad5-nCoV, looked solid. Under Phase 2, which tested 508 healthy adults, the vaccine proved to be safe and inducing neutralizing antibody responses. The vaccine was even greenlighted by the Central Military Commission for widespread use among members of the Chinese military. It was also the first in China to test its Covid-19 vaccine on humans.

Investors Sell-Off

CanSino's shares have more than tripled since the beginning of the year, but since late July the trend went downward. From its level of HK$271.40 per share on July 31, the stock has tumbled 36% to date. Why? Well, perhaps investors have grown impatient over the lack of progress.


(Yahoo Finance!: 6185)

Earlier this month, a Saudi health ministry spokesman said that it would soon begin Phase 3 trials, testing roughly 5,000 with CanSino's vaccine. But late-stage testing has yet to begin.

"As at the date of this announcement, enrolment of phase III clinical trial has not started," CanSino said in filing with Hong Kong Exchanges and Clearing Ltd. on Aug. 18.

Biotechs Rush Past CanSino

Meanwhile, there are quite a few vaccine trials that have already entered final-stage testing, including Chinese Sinovac Biotech Ltd. whose stock "SVA" has been frozen for more than a year at $6.47 per American depositary share because of a legal dispute over a "poison pill" defense by the company. The Phase 3 trial has been said to involve as much as 1,620 patients.

The U.S's  Pfizer (NYSE: PFE) and Moderna (Nasdaq: MRNA) have also entered late-stage trials to test 30,000 patients in each study. Earlier this week, Dr. Nicholas Kitchin, a top vaccine research and development scientist for Pfizer, said its trial was more than 50% complete.

Russia's Quick Vaccine Approval Sparks Controversy

On a positive note, CanSino's easygoing may be a better approach. Russia has already approved a vaccine for use -- without a Phase 3 trial. While its approval has driven controversy, the Sputnik V vaccine, developed by Moscow-based Gamaleya Institute, is undergoing mass testing and vaccination simultaneously in the country. 

If anything goes wrong, just ask Vladimir Putin, who claims his daughter took the vaccine and felt "well" after having a slightly higher temperature after each dose.

Veronika J. Wirtz, an Associate Professor in the Department of Global Health at the Boston University School of Public Health, had this to say on the matter: "World politics at the moment isn't just being played out with nuclear weapons or trade wars. In this pandemic, countries that want to put themselves at the forefront on the world stage are now saying, ‘We have the coronavirus vaccine.'"

How Trump Could Hurt Shareholders of Moderna and Pfizer in the Long Run

Speaking of politics—it appears the CDC has turned their back on the facts--and have played straight into President Trump's hands just in time for the election. If Trump's administration can bully the CDC into revising testing guidelines, you can bet that he can do the same when it comes to vaccine approvals. That could be good and bad for Moderna and Pfizer, which are both funded by the federal government's Operation Warp Speed.

Assuming the Trump administration can persuade the Federal Drug Administration (like it did with the CDC) to approve one of the vaccines regardless of its readiness for widespread use — the short term effect would be powerful. However, if the vaccine proves to have its implications with safety and effectiveness investors--and patients--could suffer. 

CanSino Stil Has a Shot in the Vaccine Race 

It's also important to note that Pfizer and Moderna both use mRNA technology, which has never been licensed for an infectious disease. Also, the first vaccine approved may not be the best. There will be more than one winner in this race. 

Since its establishment in 2009, CanSino has received one vaccine approval on Ebola. Currently, CanSino has 16 vaccine candidates in development. 

But there's been some excitement for CanSino in the past month: through the sale of 24.8 million shares, it raised 5.2 million yuan ($748 million) in its IPO on the Shanghai STAR market. At 209.71 yuan per share, it was the second most expensive IPO ever on the Nasdaq-like board, according to The South China Morning Post. Under the stock code "688185," it trades at 261.70 yuan per share. 

Will American and Hong Kong investors who sold off recently be proven right, or will Chinese STAR market players who bought in come out as winners?

CanSino Could Be a Solid Buy at HK$165 per share

Let's look at CanSino's earnings: In 2019, CanSino's loss widened by 13% to 156.8 million yuan. But the good news is that CanSino is that its losses are likely to narrow to 100.7 million yuan in 2020, according to Bloomberg's average projection of five analysts. With some uncertainty, I would look for CanSino's Hong Kong stock to fall to around HK$165 per share before buying.

While recent delays might prevent CanSino from crossing the finish line first, an approved vaccine will still give investors who stick with the stock the last laugh.